The Castle, A Perfect Refuge?
An UK based recurring client of Discreet Advisory approached us concerning his newest acquisition – a castle in the hinterland of Grasse. The client had set his eyes on a fortified house and despite lacking a drawbridge or a moat, this was nevertheless an impressive property.
The castle was held in a Société Civile Immobilière (SCI) and the vendor was willing to sell either the shares and receivables of the fiscally transparent SCI or the property. We were mandated to coordinate the structuring of this acquisition with external legal and fiscal advisors to benchmark the financing offer the client had already received from his Swiss private bank.
In discussions with our external lawyers, Maître Albert Mulder, French lawyer with the Aix-en-Provence Bar Association, it was decided to explore the buying of the shares and receivables of the SCI as he thought this would be most beneficial to the buyer, but also to the vendor. The challenges from the outset were that the SCI had not filed any accounts since its inception 15 years ago. A French registered accountant was immediately instructed to rectify this.
Furthermore, it turned out that the debts of the SCI would not suffice to enable the bank to finance roughly €8 million. Consequently, this would not permit the bank to finance and register with a French notary a fully defendable mortgage lien over the property.
Based on the accounts, the lawyer performed extensive due diligence and research and found a good solution. The problem was solved in an ingenious way by letting the SCI buy back it owns shares. The mechanism was confirmed by the bank’s French notary to be fully compliant with tax legislation and to satisfy fully the wishes of the financing bank.
A couple of other points were taken care of such as the employment of the caretaker living in the porter’s house.
We benchmarked the offer of the client’s bank and found that the loan-to-value was rather conservative. By discussing this with the bank, and due to the fact that they did not want to lose the client, we obtained a LTV that was even above general usage in the market.
In the final transaction structure, we accomplished the following:
- Transfer duties (stamp duties) for the buyer were reduced to €50,000 as compared to nearly €600,000 if he would have bought the house.
- The seller also obtained on his level a significant capital gains tax advantage by selling the shares of the SCI.
- The bank was able to finance the whole operation for the benefit of our client and take a first mortgage lien on the house for the amount of the finance – meaning a net LTV of 70%.
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This blog does not constitute financial advice. Any reader or recipient must take their own financial advice. The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal or fiscal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Discreet Advisory accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog.
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